Ramesh, who runs a small kirana shop in a semi-urban town, sees most of his revenues flow in through Unified Payments Interface (UPI) payments to his current account. Yet when he seeks a loan to expand his inventory, he is turned away for lack of credit history or collateral.

His story reflects a wider paradox: millions of small entrepreneurs leave clear digital footprints but remain "thin-file" borrowers in the eyes of traditional lending institutions.

Financial technology companies, or fintechs, and Non-Banking Financial Companies (NBFCs) have tried to plug this gap using Short Messaging Service (SMS) or email data, but such methods are patchy and insecure. At the same time, traditional lenders have been reluctant to rely on fragmented and non-standardised data-sharing mechanisms.

The Account Aggregator (AA) ecosystem breaks this deadlock by allowing borrowers to consolidate and consent to share financial data directly across institutions in a standardised and secure manner.

For customers like Ramesh, this enables cash-flow-based credit assessments instead of dependence on collateral; for lenders, it opens up scale without compromising prudence.

The ecosystem is already gaining ground: an estimated Rs 1.67 lakh crore was disbursed across 189 lakh loans using AA in fiscal year (FY) 2025, with an average ticket size of Rs 88,457. In effect, AA converts digital transaction trails into "data capital," giving individuals a fairer shot at credit, and expands markets for institutions without lowering underwriting standards.

Diluting Systemic Barriers: From Exclusion To Inclusion

Millions of Indians face structural hurdles in accessing formal credit. Many have limited or no documented credit history, little collateral, or low financial legibility, leaving traditional lenders hesitant to provide loans.

Unsecured or minimal-underwriting loans have been the main option for thin-file or no-file borrowers, but high processing and underwriting costs push ticket sizes beyond what many can realistically borrow, making formal credit largely inaccessible.

The AA framework, launched in September 2021, addresses this challenge. By allowing individuals and businesses to securely share verified financial data directly from regulated sources, AA improves financial legibility and enables lenders to assess creditworthiness efficiently. Lower underwriting costs make small-ticket lending economically viable at scale.

The results are tangible. One major bank now processes car loans in 30 minutes instead of weeks, saving Rs 9.75 crore in processing costs during their pilot alone. Processing costs dropped from Rs 400 to just Rs 90-100 per application.

A leading NBFC reports an additional Rs 310 crore in monthly disbursements, representing a 5-10 per cent boost in lending capacity across their product lines.

How It Actually Works

When Ramesh applies for a loan, he receives a consent request detailing: the type of data being accessed, the range of data required, the purpose of sharing (credit assessment), and the duration for which it will be used. He can choose which account and which financial institution to share data from.

With a single click, encrypted data flows directly from his accounts to the lender. The AA facilitating the transfer remains "data-blind", it cannot see or store his information.

The AA framework was developed through joint consultations of India's financial sector regulators, the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA), under the Financial Stability and Development Council (FSDC), anchored by the Ministry of Finance.

It is a "techno-legal" system that aligns with the principles enshrined in the Digital Personal Data Protection (DPDP) Act, embedding privacy safeguards and consent-based controls directly into the infrastructure. These safeguards ensure that financial data sharing is secure, standardised, and legally compliant, with oversight from all four regulators.

Since its launch, the framework has achieved remarkable cross-sectoral adoption. Today, 748 financial institutions operate as financial information users, 179 as financial information providers, and 16 licensed AAs facilitate secure transactions.

Two hundred and twelve crore financial accounts are enabled for consent-based sharing, making 60 per cent of India's financial accounts available on the network.

As of August 2025, the ecosystem has processed 28.9 crore successful consents and linked 20.8 crore accounts, unlocking opportunities for customers like Ramesh, who were previously invisible to the formal financial services industry.

The GST Game-Changer For Small Business

The Department of Revenue under the Ministry of Finance has integrated the GST Network (GSTN) into the AA ecosystem, bringing taxation data, Goods and Services Tax (GST) receipts, and filings into the data-sharing purview of the ecosystem.

This marks a truly cross-sectoral expansion, linking tax, banking, and other financial data to help lenders better understand business performance for the credit assessment process of small businesses.

By combining GST receipts with banking and other financial data, lenders can now build detailed, machine-readable credit profiles, making loans under Rs 1 lakh economically viable.

Early pilots for invoice-based lending are promising, and as automated data sharing scales, banks and NBFCs may increasingly extend credit to thin- or no-file borrowers, transforming small-ticket lending for millions of micro enterprises like Ramesh's and expanding access to formal finance across the sector.

Street-Level Impact: From Informal To Formal

The AA ecosystem is opening the doors of formal financial services to customer segments that were previously unserved, marking a significant step towards true financial inclusion. In FY25 alone, 189 lakh loans were disbursed using the AA framework, with an average ticket size of Rs 88,457, bringing millions of individuals into the formal credit system on terms far better than they could previously access.

Beyond access, AA gives customers full agency and control over their financial data, allowing them to choose their service providers. This shift not only improves convenience and transparency for borrowers but also fosters a more competitive, innovative, and user-centric financial services industry, creating a pathway for small businesses and thin-file borrowers to participate meaningfully in the formal economy.

B G Mahesh

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